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China’s economic rise has attracted the attention of Latin American countries keen on accessing the Chinese market, but Latin American fears of deindustrialization and Chinese dumping have driven the two giants apart. With the Chinese economy set to contribute 30 percent of global growth in the next ten years, Latin American protectionism and fear of Chinese imports can derail the region’s relationship with the growing economic power.
Carnegie-Tsinghua’s Matt Ferchen hosted a roundtable discussion to review the prospects and challenges of Sino-Latin American trade partnerships. He was joined by Alicia García-Herrero, chief economist for emerging markets at Banco Bilbao Vizcaya Argentaria banking group, and Mario Nigrinis, principal economist of BBVA and Chinese experts.
Commodity Exports Both a Blessing and Curse
- Asymmetrical Trade: Trade between Asia and Latin America has increased nine fold in the past twenty years, but experts pointed out that this trade was highly asymmetrical, with Latin American exports consisting of commodities such as iron ore, soy bean, copper, paper, and animal feed. By contrast, Asian exports to Latin America are medium and high value manufactured goods such as motor vehicles, communications, and electronic devices. Nigrinis said that the rise of China has had a strong effect on commodity prices and Latin American commodity exports, with exports of commodities representing half of Latin America’s exports.
- Fears of Imbalances: Experts said that Latin American countries fear that overreliance on Asia for manufactured goods and overreliance on commodity exports would result in diminishing returns from excessive investment in one particular sector. Excessive concentration on exports also created a vulnerability to external economic shocks. They cited a fear of “Dutch Disease,” a term used to describe the deindustrialization of Latin America’s nascent manufacturing industries. Nigrinis concluded that China’s hunger for commodities does affect Latin American efforts to diversify its exports. He added that China’s boom as a manufacturing hub has resulted in Mexico’s loss of market share in the United States, particularly after China’s entrance into the World Trade Organization.
Chinese Disenchantment
- The Cold Shoulder: Nigrinis explained that growing fears of China dominating Latin American economies has resulted in cold responses to increased trade with China. In particular, China has expressed disappointment and surprise at Mexico’s frosty attitude toward China. Chinese entrepreneurs have also expressed dissatisfaction and hesitation with investments in Mexico and Latin America. This trend may intensify as Latin American countries pursue trade protectionism during the current financial downturn.
- An Unsteady Step Forward: Another panelist added that despite the growing tension over economic competition between China and Latin America, there is potential for partnership between the two. Mexico, for example, can complement China economically due to its commodity endowments and access to a free trade agreement with the United States, becoming a hub for China in North America. He further explained that China can also become a huge market for Latin America, as China’s growing middle class will demand higher consumption for items other than commodities. In addition, China could provide development and investment for Mexico’s aging infrastructure. However, negative perceptions and regionalism are likely to stall greater cooperation between China and Latin America especially in light of increasing trade protectionism in a period of economic instability.
Discussants: Yue Yunxia, Zhang Yong
